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So Much For "Housing Has Bottomed" - Shadow Housing Inventory Resumes Upward Climb

Tyler Durden's picture


Appropriately coming just after today's Housing Starts data, which captured MSM headlines will blast was "the highest since 2008" is the following chart from this morning's Bloomberg Brief, which shows precisely the reason why "housing has bottomed" - and it has nothing to do with organic demand rising. No, it has everything with excess inventory once again starting to pile up, which means that the imbalance in the supply and demand curves is purely a function of shadow inventory being stocked away, and that there is once again no true clearing price.

From Bloomberg:

The shadow inventory of homes – those in foreclosure plus those 90 days late on mortgage payments – is on the rise again, a further indication that the supply side has not yet healed. Accoring to RealtyTrac, foreclosure starts jumped 6 percent on a year ago basis in the second quarter, the first year-over-year increase since 2009. There are roughly 4.16 million homes that could begin to flow to market.


Once one takes the number of homeowners 30- to 90-days late on their mortgage payments and includes the likely default of those that have negative equity on their homes, there is a strong possibility more than 6.5 million additional foreclosures will enter the pipeline. The  addition of homes that banks may be holding back suggests a much larger number. Laurie Goodman of Amherst Securities Group has testified before Congress that it could be as high as between 8 and 10 million.

And scene.


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Wed, 07/18/2012 - 09:00 | 2627591 TrainWreck1
TrainWreck1's picture

What is clearly needed is the banks to be able to purchase everything for pennies on the dollar, then rent it out to the ungrateful serfs.


Wed, 07/18/2012 - 09:04 | 2627605 j0nx
j0nx's picture

At full market value to the serfs. FIFY.

Wed, 07/18/2012 - 09:13 | 2627635 Thomas
Thomas's picture

Fourfold up from '07 and climbing. Quite the recovery. Somebody put a sock in Buffett's mouth next time he opens it.

Wed, 07/18/2012 - 09:20 | 2627648 GetZeeGold
GetZeeGold's picture



Hey, give Buffett a break. He stopped the pipeline to keep us from the cheap gas......thanks Uncle're the best!!!!


Wed, 07/18/2012 - 11:08 | 2628128 redpill
redpill's picture

Banks don't want to foreclose anymore, they realize they don't have the proper paper trail, don't want to incur liability, and don't want the bad press.  Instead we'll continue to see people go delinquent on their mortgage, have notice of defaults filed, etc., but instead of proceeding to foreclosure the vast majority will be resolved as a short sale.  That way the bank gets it off their books, they take the write off anyway, and they don't have to be seen as the bad guy foreclosing peoples' homes.  Banks are political entities more than ever, and are desperately trying to improve their image.

There is also the benefit that people are less likely to trash the place, and there won't be an extended vacancy period during which all kinds of nasty things can occur, so ideally as a short sale the properties will change hands in less of a distressed condition physically than if they actually go through foreclosure.

Wed, 07/18/2012 - 10:16 | 2627849 HarryM
HarryM's picture

Phoenix market has been in a feeding frenzy for past couple of months.

Current inventory is 3 weeks - anything decent gets snatched in 1-2 days.

Selling 15% over asking prices - multiple offers.

Prices up 20-30% in last 4 months.

Keep in mind prices had dropped to 40% of 2005 levels, now at 60% of 2005.

Purchases are all Investor driven - buy em , fix em , rent em or flip em.

Absolutely insane

Next step of course is the A-Hole Builders will roll out tens of thousands of rentals all at once and destroy the market.

Wed, 07/18/2012 - 21:47 | 2630459 Harlequin001
Harlequin001's picture

No, next up is that interest rates pop and they all get stuck with flips they can't flip.

Doesn't take the brains of a rocket scientist to work that one out...

Wed, 07/18/2012 - 10:07 | 2627819 Offthebeach
Offthebeach's picture

Many serfs, or their children, have extra body organs to sell. Do you really need two eyes to watch Jerry Springer, Cajun Pawn. HSN, NASCAR? Lung lobes, eyes, kidneys, skin, tendons...
We need a junk serf organ bond market where in return for housing unti they are called to turn over their parts. All money would go from sales to the banks.
Or we could just continue with the present system of perpetual tax/debt/printing by the gov then to the banks. No need for a "regulated" market.

Wed, 07/18/2012 - 10:09 | 2627837 vast-dom
vast-dom's picture


Wed, 07/18/2012 - 09:00 | 2627592 Shizzmoney
Shizzmoney's picture

Summary: Rich people and those with good enough credit to take on huge amounts of debt buying houses.

The rest of us? Your rent is going up.

Wed, 07/18/2012 - 09:19 | 2627659 azengrcat
azengrcat's picture

True in the phoenix market. Investors are buying up shadow inventory at auction and buying mortgage paper while consumers are left fighting over the scraps in mini bidding wars over dumpy investor flips.

Wed, 07/18/2012 - 09:34 | 2627721 toady
toady's picture

Hello fellow Phoenician!

The auction stuff I've seen has been the 'scraps' you mentioned, yet the volume of bidders is high(30+ on average).

The neighborhoods I have monitored are flat line. For every house that is sold another is abandoned. Shadow inventory isn't going up or down, but the neighborhoods I watch are limited.

I've seen a couple of questionable people approved recently. Maybe the banks are loosening up again ...

Wed, 07/18/2012 - 09:32 | 2627712 groundedkiwi
groundedkiwi's picture

And when government stops paying subsidies for rent, what happens then?

Wed, 07/18/2012 - 09:58 | 2627785 Winston Churchill
Winston Churchill's picture

Hope they are doing it on credit.

Over 2000+ fraudclosure victims have already regained

their house back,leaving the new 'owners' well and truly fucked.

Thats just starting and will turn into a Tsunami.

Enjoy that house whilst you can.


Wed, 07/18/2012 - 10:00 | 2627790 Unbezahlbar
Unbezahlbar's picture
J.C. Penney laid off an additional 350 people at its Plano headquarters


some of those "rich people" may soon see changes too....

Wed, 07/18/2012 - 09:01 | 2627599 Hmm...
Hmm...'s picture

In my neck of the woods the market is a mess, but better than the past.  Certain properties sell, others sit there forever.

But what is most interesting is the number of apartment complexes being built.  You can't throw a frozen chicken 10 feet without it hitting a new "luxury" apartment complex.  Asking rents are outrageous.

Luxury apartment complexes are the luxury condos of 2006.  This will not end well.

Wed, 07/18/2012 - 09:03 | 2627603 RobotTrader
RobotTrader's picture

And guess who the first "victims" are of this news?


The Gold Bugs, GC now down $21

Wed, 07/18/2012 - 09:09 | 2627622 bigdumbnugly
bigdumbnugly's picture

housing hit bottom some time ago for r.t.

he's still in his mother's basement 

Wed, 07/18/2012 - 09:27 | 2627682 augustusgloop
augustusgloop's picture

he thinks of it as his man cave:


ps gold started its dive, as it does nearly every day, at 4 am / london trading. 

Wed, 07/18/2012 - 09:31 | 2627705 bigdumbnugly
bigdumbnugly's picture

yes, i synchronize my clocks at home to it.

Wed, 07/18/2012 - 14:09 | 2629161 MarsInScorpio
MarsInScorpio's picture

Augustusgloop: I took the time to read the Bloomberg article - thanks for the reference.


To me, it illustrates the widening gap between the rich and everyone else. Sales for these homes continue among the Ultra Rich because the bulk of income increases go to them. The rest of the population is either stagnant, or declining.


To me, the cognitive dissonance comes from comparing the bulk home sales against these Ultra Rich sales. While the bulk of new home sales is still at historical bottoms, the sales to the Ultra Rich are trending up as their income goes up regardless of what is happening to the general population.


I'm curious to see if there will be a revolt against whatever you want to call this economic/political system - I use the word kleptocracy. As has been pointed out relentlessly in ZH, the financial criminals are not being arrested; they go off and are left alone so long as they don't rip off their fellow Ultra Richers. That's why Corzine is walking free, while Madoff will die in a federal prison. Madoff ripped off the wrong subculture.


So the income disparity will continue, and because of America being so suburban, rallies like you see in Europe will not occur here.


This election is asking which Wall Street muppet will be president. As I've noted before, there will be no economic justice from Romney, only the chance to get rid of the Black Racists running the Just Us Department.


Wed, 07/18/2012 - 09:11 | 2627626 TrillionDollarBoner
TrillionDollarBoner's picture

You are so right. I'm off to sell all my gold and buy into the true safe haven: US property.


Wed, 07/18/2012 - 09:11 | 2627630 sudzee
sudzee's picture

Lookin forward to buyin a few houses for 1 ounce physical each.

Wed, 07/18/2012 - 09:29 | 2627692 LawsofPhysics
LawsofPhysics's picture

You better make sure that the seller actually has the fucking note or title first - therein lays the rub.  You may be suprised to learn that several entities have a claim on the property, so good luck with that.

Wed, 07/18/2012 - 10:19 | 2627886 Getting Old Sucks
Getting Old Sucks's picture

That's a real no-no to bring that up.  Notice you never hear that topic in the news?


Wed, 07/18/2012 - 09:38 | 2627734 Toolshed
Toolshed's picture

Why overpay?

Wed, 07/18/2012 - 09:14 | 2627637 duo
duo's picture

It's called running the stops.  I thought you would know that.

Wed, 07/18/2012 - 09:04 | 2627606 azzhatter
azzhatter's picture

The problem with an "improving" market is all the pent up selling demand. I personally know 4 people who are witing for the first sign of an uptick to put their homes on the market. A lot of people ready to bail

Wed, 07/18/2012 - 09:29 | 2627690 groundedkiwi
groundedkiwi's picture

Bail to where?

Wed, 07/18/2012 - 09:30 | 2627702 LawsofPhysics
LawsofPhysics's picture

FEMA camp?

Wed, 07/18/2012 - 10:31 | 2627935 lynnybee
lynnybee's picture

' bail to where ?'    ....   there is nowhere to run, i have tried, so i am now hunkering down and building my bunker, fortified, am now a hoarder.   

Wed, 07/18/2012 - 09:31 | 2627708 Vergeltung
Vergeltung's picture

you bring up a very important point. there is indeed a HIGE pent up selling demand. as soon as prices begin to climb, they will crater again, for exactly that reason!

Wed, 07/18/2012 - 09:08 | 2627618 StockHut
StockHut's picture

I never understood why the financial media obsesses over housing starts.  There is such an excess of supply, why the hell would we want to add to it?  Home builders need to go bankrupt and stop building houses, then the housing market has a shot at stabilizing.

Wed, 07/18/2012 - 10:02 | 2627798 Wrender
Wrender's picture

Spot on.  Where are all the people who are going to fill all the vacancies on the market? 

If interest rates and the lending industry actually reflected the long term risk of overbuilding the market you would need a frozen chicken rail gun to hit a new build.  Yet we live in a market where short sited blinders are common place. 

Wed, 07/18/2012 - 11:47 | 2628299 Stuck on Zero
Stuck on Zero's picture

The housing starts are in booming places like North Dakota and areas with shale gas.  The housing defaults are in the liberal states.


Wed, 07/18/2012 - 21:31 | 2630414 FreedomGuy
FreedomGuy's picture

This is an interesting topic on many levels. First, StockHut, I think you are actually correct. In Austrian economics we have the classic misallocation of resources because of government stimulation through the artificially low credit rates and pressure to lend to everyone including the unqualified. It set in motion a huge false demand as many new buyers entered the market at the bottom, primarily. Does anyone else remember the late night infomercials on how to get rich quickly pyramiding housing sales? I knew it was trouble then.

Skyrocketing prices and demand sends a clear economic signal even a deaf man could hear to move more money, resources and people to home construction. Trees get cut, trucks transport stuff, people are trained as electricians and carpet layers, finance companies pop up, etc. Hundreds of thousands of people moved into the industry.

Now that we have discovered the demand was false, the prices are false and the projections are false, we in a process of true price discovery. However, the true price is different than it would have been because their are enormous excess inventories. When the waitress from Vegas owned 15 homes there must eventually be 14 other people who actually want to live in those homes, even as renters much less buyers. There were not. In fact, 15 home owner speculators were selling to other 15 home owner speculators driving prices further.

Second, there is a long term demographic shift as the population ages and the younger members have fewer kids...unless on state assistance. I see older Americans downsizing their homes, moving to low maintenance condos and smaller places. Again, inventories should rise.

I expect housing will be a crappy personal investment for the future. In the present...some companies need to fold and some others need to find new lines of work.

This is the real fruit of central planning. Get used to it. It is everywhere, now.

Wed, 07/18/2012 - 09:09 | 2627623 buzzsaw99
buzzsaw99's picture

Multi family units to cater to section 8 recipients. Snap and section 8 are growth industries.

Wed, 07/18/2012 - 09:28 | 2627687 adr
adr's picture

You should see the new section 8 luxury estates going up in every major city in Ohio. They are glorious. Manicured lawns, three stories, mid century style streetlamps, playgrounds for the kids, central AC, triple pane double hung windows, full kitchens with stainless appliances, vinyl siding, and gas fireplaces.

If you show them to anybody they think it is a new luxury condo development. Then you ask them to look at the cars and the people walking around. They see the Cadillacs with 22" dubs and guys walking around in white tank tops with red bandanas. You then see most of them throw up in their mouth a little.

Wed, 07/18/2012 - 09:51 | 2627765 Wrender
Wrender's picture

Add to this the fact that the EPAs new requirments on Lead Based Paint will place HUGE costs on existing (read older) section 8 developments where the restrictions and regulations are close to fiscally impossible w/out putting up a new building.  Get ready to see older section 8 buildings razed and replaced w/ luxery new builds.  A sub-bubble being quickly inflated w/ hot air. 



Wed, 07/18/2012 - 10:16 | 2627869 Omen IV
Omen IV's picture

do you have a link for this new regulation? if it affects lead based paints does it also effect asbestos in old buildings 75-100 years old which usually go hand in hand with lead based paints?

Wed, 07/18/2012 - 10:34 | 2627947 Wrender
Wrender's picture

As far as I know this only applies to lead based paints.  In short the new regulations require almost any work being done in a residence to have a contractor licensed for lead paint (class time plus money to "the man" for licensing/credentials). Anytime you do more than touch a painted surface you have a whole new set of procedures to go through. There are extra restrictions on section 8 and affordable housing. 

I know of a few people who are fighting to keep their buildings due to problems associated with these new policies.  The costs for remediation are just too high.  I could go on and on but will leave it short... 

More details can be found here:

Wed, 07/18/2012 - 09:15 | 2627638 Quinvarius
Quinvarius's picture

I knew this was happening just from going running every morning.

BTW, anyone notice how old and stressed Bernanke looked yesterday?

Wed, 07/18/2012 - 09:19 | 2627656 Village Smithy
Village Smithy's picture

He now fears the Frankenmonster that he has created. Bond yields will rise and the bubble will break.

Wed, 07/18/2012 - 09:26 | 2627678 groundedkiwi
groundedkiwi's picture

I did notice Bernankes dishevelled look. It looked very contrived to me. Reminded me of the Georgian President chewing his tie as an SOS to the USA.

Wed, 07/18/2012 - 09:16 | 2627640 monopoly
monopoly's picture

I guarantee that you will not see this graph or its explanation on the idiot channel or MSM. 

Wed, 07/18/2012 - 09:19 | 2627654 Jason T
Jason T's picture

home equity loans of interest only are going to start to be both interest and principle

Wed, 07/18/2012 - 09:27 | 2627680 blueRidgeBoy
blueRidgeBoy's picture

the bottoming has bottomed

Wed, 07/18/2012 - 09:27 | 2627681 LawsofPhysics
LawsofPhysics's picture

Before you can stack things on top of other things, you need to build them first. Who says you can't channel stuff in housing?

Wed, 07/18/2012 - 09:28 | 2627686 Never One Roach
Never One Roach's picture

I see so many houses for sale that sit there for months even though they drop the price to below $50 psf. Some turn to rentals which are now beginning to flood the market and rents are dropping as rental supply of houses and apartments  soar. Rentals may become a Bubble on top of the house Bubble.

Wed, 07/18/2012 - 09:31 | 2627710 adr
adr's picture

Nearly every house that sold in my neighborhood was sold to a speculator looking to flip it. Almost all of them a rental properties right now. Most of them are still vacant.

Wed, 07/18/2012 - 09:49 | 2627760 TrainWreck1
TrainWreck1's picture

Rental double bubble.

Sounds ominous*


*or something involving two hookers


Wed, 07/18/2012 - 09:30 | 2627695 Problem Is
Problem Is's picture

Where's my Douche Bag Economist of the Year...

The NAR's own "Clueless" Lawrence Yun to lie his way out of this one?

Wed, 07/18/2012 - 10:46 | 2628011 Offthebeach
Offthebeach's picture

Have you seen a relator doll? Cheap blue blazer, you pull the string in the back and all it says is," It's a great time to buy",

Wed, 07/18/2012 - 09:29 | 2627698 Clark Bent
Clark Bent's picture

The Feds are striving with all the lucre they can promise to "stabilize" the housing market. They are met with two primary concerns it seems to me. First, they have to downplay the perception that the entire market is insolvent, and that prices have been distorted by easy money and sharp dealing on selling these diluted assets to unwary buyers. So they have to preserve the value on the books to keep the zombie banks appearing solvent and able to lend, and they also have to create the fasle impression that so many IRA's, 401k's, and pension plans (see especially puyblic employee pension plans) are solvent. Were the price mechanism able to apply and find the true value of houses, these props to an orderly society would be (apparently) devastated. Think fo the political consequences if Americans were met with their retirments reduced overnight by 50% or more and guaranteed pesnions cratered. So the powers that be are slowly trying to inflate and maintain the bubble prices with the aim that if they lie long enough, we will all just accept the inflated prices. Or, they can quietly dilute the currency so that on paper the prices seem the same, but our money is worhtless. What they are resisiting is what would actually prove useful to a generation of Americans (and would protect our future security) and let the prices deflate. My reading of Von Mises suggests that all this effort will come to naught and the price mechanism will assert itself with a vengeance, much the worse for these machinations. Wish there was something I could do about it, but people are NOT catching on to the manipulations.  

Wed, 07/18/2012 - 09:33 | 2627715 Problem Is
Problem Is's picture

In other words The Bernank is fighting gravity with fiat and fraud to save the balance sheets of the worthless zombie banks including his own...

Wed, 07/18/2012 - 09:38 | 2627733 adr
adr's picture

You have what, 100 million households or so? You have almost 20 million properties in the shadow inventory or forclosure pipeline.

Then you have tens of millions underwater that would sell their home if you could. All I hear is people waiting for the uptick in housing so they can put their home on the market.

Where are the buyers going to come from, when all there are is sellers?

Wed, 07/18/2012 - 10:32 | 2627940 Offthebeach
Offthebeach's picture

Demographics demographics demographics. The big population bulge is retiring. They can not afford to keep up their homes. Their investments due to Bernanke Zero/Negitive interest rate are providing butkiss.
Couple this with not only less young families, who are indebted to the leftist credentials industry, and are saddled with servicing fedgov, state and local debts and underfunded/performing pensions for 40 year old, retired cops firefighters....
Very few young realised the intergenerational gang bang that is perma-marked into their financial future.
Anyway, with the market so weak, with fedgov financing , we have less, poorer, more dented and more taxed "customers " entering.
Go long tents and tarps.

Wed, 07/18/2012 - 09:40 | 2627739 JohnKozac
JohnKozac's picture

Can you use food stamps for a down payment?  How about an EBT card?  I hear it's just a SNAP!

Wed, 07/18/2012 - 09:42 | 2627743 Toolshed
Toolshed's picture

Shouldn't Ilene now post one of Lee Adlers "articles" informing us how the housing bottom is really, really, really, absofuckinglutely here for real this time?

Wed, 07/18/2012 - 09:59 | 2627774 Floodmaster
Floodmaster's picture

First-time buyer must avoid China,Canada, Australia, Switzerland, Norway, Denmark, UK, France and even Spain. Don't Be a Victim of a Ponzi Scheme

Wed, 07/18/2012 - 10:04 | 2627806 Unbezahlbar
Unbezahlbar's picture


6/26/2012 @ 4:48PM |8,283 views 10 Million Underwater Mortgages And Shadow Inventory Worth $246B Mean Housing Trouble(Forbes)


Must be real bad if even Forbes is warning people about the housing mess.

Wed, 07/18/2012 - 10:04 | 2627809 bidaskspread
bidaskspread's picture

Any correlation in the uptick in delq. to the expiration of the Mortgage Debt Relief Act of 2007? Foreclosures typically occur after 120 days, that puts these homes delq on today foreclosing earliest at 11/15/2012. Will be interesting to see if the delq. drops in 45 days when a borrower has to consider if they are willing to pay tax on debt forgave.

Wed, 07/18/2012 - 10:09 | 2627834 Getting Old Sucks
Getting Old Sucks's picture

The "American Dream" (cough: lie) of home ownership has been reveled.  Everyone rents their digs.  Either from the government or from a renter of the government.  I think that's one thing all serfs are now aware of. 

Wed, 07/18/2012 - 10:11 | 2627846 Abiotic Oil
Abiotic Oil's picture

"Free house with every new SNAP Card application and a $3000 check to buy some thingamajigs! Come one come all (citizenship not required)!"


Wed, 07/18/2012 - 10:14 | 2627858 FieldingMellish
FieldingMellish's picture

There will be no recovery until at least 2050. The Fed itself has said so:

Figure 8a at the end of the paper is the one you want.

Wed, 07/18/2012 - 10:25 | 2627909 tony bonn
tony bonn's picture

where is jim cramer  when you need him?

Wed, 07/18/2012 - 10:28 | 2627920 ThanksIwillHave...
ThanksIwillHaveAnother's picture

Does anyone understand that Mark-To-Market is still suspended for banks' real estate asssets?  How would these banks be doing if they had to mark to market?   It seems they are hoping to inflate away their losses while washing and rinsing at the discount window.

Wed, 07/18/2012 - 11:00 | 2628095 Offthebeach
Offthebeach's picture

I'm going to go down to the local bankster on the corner, and take out a massive home equity on my mark to mark value. Right?
I'll just get. Bernanke-Mugabe bank charter. Call my self a bank.
( When I watch Mafia movies nowadays, the mob characters talk more honestly the financialist on TV. )

Wed, 07/18/2012 - 10:34 | 2627954 lynnybee
lynnybee's picture

' no recovery until 2050 ' !     i will be dead.

Wed, 07/18/2012 - 10:36 | 2627962 FieldingMellish
FieldingMellish's picture

R.I.P. lynnybee

By the way, I said "at least", the paper makes no projections beyond 2050...

Wed, 07/18/2012 - 10:37 | 2627969 Vince Clortho
Vince Clortho's picture

All those equations are worthless with false data.

Wed, 07/18/2012 - 10:44 | 2628000 ThanksIwillHave...
ThanksIwillHaveAnother's picture

Indeed, just ivory tower "intellectual" misusing middling math equations.   The market is not linear.

Wed, 07/18/2012 - 10:46 | 2628012 FieldingMellish
FieldingMellish's picture

Perhaps. So far, however, the model looks spot on.

Wed, 07/18/2012 - 10:55 | 2628064 ThanksIwillHave...
ThanksIwillHaveAnother's picture

Curve fitting is not reality.

Wed, 07/18/2012 - 11:24 | 2628215 FieldingMellish
FieldingMellish's picture

Very odd how a paper from 2005 has managed to curve fit to data up to 7 years later. When I first showed this paper on a housing forum in 2006 it was met with similar disbelief and derision. Demographics is the overriding force both in the economy and housing. Because a prediction which has so far proven to be correct does not match with ones wishes or beliefs doesn't diminish the prediction but should start asking questions of the wish or belief. Perhaps its the belief of those that wish for a recovery that is not reality.

Wed, 07/18/2012 - 11:52 | 2628330 ThanksIwillHave...
ThanksIwillHaveAnother's picture

Did you miss the FED manipulating markets since then?   If the dollar crashes, what happens to housing?

Wed, 07/18/2012 - 12:18 | 2628508 FieldingMellish
FieldingMellish's picture

The Fed has been maniuplating long before as well. They can continue to manipulate well into the future. I agree that if the dollar pukes, housing will go up in nominal terms but it still might fall in real terms.

Wed, 07/18/2012 - 10:58 | 2628082 Kali
Kali's picture

This will be interesting if more cities start going after these banks for not maintaining these foreclosed houses that are rotting away all over the place.  I love the argument US Bancorp gives, "it is the mortgage servicers who are responsible for maintenance of these houses, not us"

Wed, 07/18/2012 - 11:06 | 2628125 ThanksIwillHave...
ThanksIwillHaveAnother's picture

Wow!   Shoot yourself in the foot then bring out the bulldozers.  Stimulus!!!

Wed, 07/18/2012 - 11:07 | 2628135 rosiescenario
rosiescenario's picture

If you are a builder and have optioned land it may be your only course of action is to proceed and get a construction loan meaning you have to get 'started' and get a permit issued.


If you do not do so, then you would be writing off the entire amount spent on the optioned land.


Just guessing that many of these 'starts' are a last gasp desperation move by some home builders.

Wed, 07/18/2012 - 11:34 | 2628250 Morrotzo
Morrotzo's picture

One thing that isn't talked about is just who is supposed to be purchasing the shadow inventory?

10 million houses in "shadow inventory" and another 10 million people with underwater mortgages waiting for an "uptick" to sell

So forget about building new properties for now. What the fuck are you supposed to do with 20 MILLION houses?

You can't sell 'em to Generation X, Y, and Millenial. They've got no jobs. They owe 5 grand on their credit cards, 5 grand on their car and 25+ thousand dollars on average in the only non-dischargable debt in America: student loans.

20 million houses out there, 1+ trillion owed just on student loans. Nobody can afford 25 percent down on an overpriced house. The jobs market is as bad as its been in 2 generations for these young adults and there is a premium placed on ability to move so how can these young people afford to tie themselves down to mortgages for decades?

Renting is a bubble now, too. Young people and boomer retirees are going into the rentals because the house market is so over-priced, over-stocked and fraudulent. Eventually the rent prices will have to go down as the market is being flooded with unsellable properties converted to rentals and "luxury" apartments. That's the thing with bubbles. They all pop sooner or later!

The crash is going to be MONUMENTAL and GENERATIONAL. It would be so much better if all the fraud and controls and scheming and manipulation ceased and housing and rent went away from being a malinvestment and got fairly valued.

Wed, 07/18/2012 - 11:36 | 2628254 Morrotzo
Morrotzo's picture

One thing that isn't talked about is just who is supposed to be purchasing the shadow inventory?

10 million houses in "shadow inventory" and another 10 million people with underwater mortgages waiting for an "uptick" to sell

So forget about building new properties for now. What the fuck are you supposed to do with 20 MILLION houses?

You can't sell 'em to Generation X, Y, and Millenial. They've got no jobs. They owe 5 grand on their credit cards, 5 grand on their car and 25+ thousand dollars on average in the only non-dischargable debt in America: student loans.

20 million houses out there, 1+ trillion owed just on student loans. Nobody can afford 25 percent down on an overpriced house. The jobs market is as bad as its been in 2 generations for these young adults and there is a premium placed on ability to move so how can these young people afford to tie themselves down to mortgages for decades?

Renting is a bubble now, too. Young people and boomer retirees are going into the rentals because the house market is so over-priced, over-stocked and fraudulent. Eventually the rent prices will have to go down as the market is being flooded with unsellable properties converted to rentals and "luxury" apartments. That's the thing with bubbles. They all pop sooner or later!

The crash is going to be MONUMENTAL and GENERATIONAL. It would be so much better if all the fraud and controls and scheming and manipulation ceased and housing and rent went away from being a malinvestment and got fairly valued.

Wed, 07/18/2012 - 12:00 | 2628382 Bicycle Repairman
Bicycle Repairman's picture

Mortgage rates will rise.  Inventory will be dumped.  Boomers will downsize.  The kids will have to pay their college loans.  Property taxes will go up.  Incomes will drop.  Unemployment will increase.  And housing will continue to crash.

Don't bother looking at charts.

Wed, 07/18/2012 - 12:09 | 2628443 dirtbagger
dirtbagger's picture

Mostly rubbish.  If true, this would mean the following:

1)  Housing Investors using cash are idiots and are overpaying on their investments.

2)  Homebuilders (huge risktakers) are idiots and have no understanding of the markets in which they derive their income. 

3) Individual home buyers are idiots as the value of their home is going to see large declines. 

All the above people and businesses with skin in the game seem to have a very different view than the author on which direction the housing market is going.

Wed, 07/18/2012 - 12:49 | 2628691 Wrender
Wrender's picture

Your argument fails to recognize the moral hazard set by the FEDs low interest rates in a market that does not reflect low risk.  If one were to apply this fact it becomes clear that short term profits are outweighing the obvious long term risk with overbuilding and crutching up real estate prices. 

Investors and homebuilders can make money off the continued follies of the FED and lending industry while Individual homebuyers are not idiots (mostly) they are going to get stuck with the results as they are the long term holders.  Why is this?  Conditioning, my friend: too many people interested in seeing the industry continue to float on the hot air bubble for as long as possible. 

Wed, 07/18/2012 - 14:11 | 2629178 dirtbagger
dirtbagger's picture

What bubble are you referring to.  In many communities in the West, real estate prices have dropped 40-55% and prices are back to 2000 levels.  if that is not deflationary bubble bursting, then what is?  When prices drop substantially below replacement cost, there is an arbitrage opportunity.  Once could argue that investors and home buyers are taking advantage of this opportunity.  

Home builders have to put a lot of money up-front to develop a property.  Small builders are personal guarantors of the loans.  I would guess their cost of funds are close to 5.5-6%.  Cheap money only helps when their potential buyers apply for loans.   Without seeing demand optimism, homebuilders simply do not have incentives to take on these risks, regardless of the cost of money.  Aggregate demand for US new housing has typically been about 1.2  units per year.   Part of this demand is to replenish old housing inventory. 

Granted, financial institutions are controlling the release of distressed properties for a variety of reasons (primarily balance sheet preservation and loan documentation issues).  The shadow inventory story has been going on for several years with the proponents predicting a very hard landing for housing.   Didn't happen, just a slow grinding down of prices. This is simply old news and it is amazing that these economic sages are never held accountable for erroneous predictions.  Right or wrong, many individuals and businesses are more optimistic about the housing market. 

Wed, 07/18/2012 - 14:48 | 2629385 Wrender
Wrender's picture

You can put your boots in the oven but it don't make 'em biscuits.

I agree with several statements you make but still feel you are not addressing the whole picture.  Yes, in some markets prices have stabalized and even gone up.  In most markets?  NO.  Yet we cannot look at prices and declare all is well unless we are willing to believe the market exists in a vacuum.  There are many other factors that effect the long term success or sustainability of the market in its current condition. 

Where is the foundation for a true recovery in the market?  Are there shiny new jobs out there?  Are people making more on average?  Are there enough people to fill all of the housing out there?  Do current interest rates truly reflect the risk in the market?  Shadow inventory is calculated from numbers reported for delinquencies and foreclosures, they predictions. Have these numbers declined significantly?

Sadly, you are right that most people are optimistic about the housing market. But that's not hard considering the amount of people in the industry running around blowing sunshine up our a$$es.


Wed, 07/18/2012 - 15:23 | 2629539 dirtbagger
dirtbagger's picture

I don't disagree with your assessment of a lack of a true recovery.  Although very high by historical standands, NOS, NOD and REO's have been slowly decreasing over the last 6 months.   One argument is that the number of listed distressed properties  are decreasing because of stricter forclosure rules, and these properties will show up in the near future as shadow inventory.   My argument would be that there has also been a large increase in short sales which are for the most part offsetting the slowdown in foreclosure preceedings and there is no imminent danger of a substantial increase in inventory overhang. 

Even with incredible amount of intervention in the housing market, In the long run it is all about affordability.  Housing prices in a stable market will reflect the earnings power of the community.  If there are not any new shiny jobs and people are not making more on average in community A,  then prices will need to reflect the conditions in community A and be in the 3x - 3.5x earning range.  Inner city housing prices in Detroit would be a prime example - no earning power - prices in the toilet. 

In the Macro view, most housing charts seem to indicate that we have reached a positive tipping point on housing affordability.  

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